A Multi-agent Incomplete Equilibrium Model and Its Applications to Reinsurance Pricing and Life-Cycle Investment

Keisuke Kizaki, Taiga Saito and Akihiko Takahashi
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Keisuke Kizaki: Graduate School of Economics, The University of Tokyo,
Taiga Saito: Faculty of Economics, The University of Tokyo, Mizuho-DL Financial Technology Co., Ltd.
Akihiko Takahashi: Faculty of Economics, The University of Tokyo

No CIRJE-F-1206, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper develops an incomplete equilibrium model with multi-agents' different risk attitudes and heterogeneous income/payout profiles. Particularly, we apply its concrete and computationally tractable model to reinsurance derivatives pricing and life-cycle investment, which are important for insurance and asset management companies in practice. In numerical experiments, we explicitly obtain endogenously determined expected returns of the risky asset in equilibrium, agents' specific reinsurance prices with their stochastic discount factors (SDF) and optimal life-cycle trading strategies. Moreover, we investigate how each agent's degree of risk aversion and income/payout profile, and correlations between an insurance or economic factor and the risky asset price affect reinsurance claims pricing and optimal portfolios in life-cycle investment.

Pages: 29 pages
Date: 2022-12
New Economics Papers: this item is included in nep-rmg
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